Bridgewater founder defends belief that inflation poses greater risk to workers than to investors

Ray Dalio is the founder of Bridgewater Associates, the $160 billion hedge fund that holds $120 billion in assets under management. His book The Big Short details how he predicted the housing bubble of 2007 and 2008. Dalio has been open about his doubts about the effectiveness of big government since at least his 2010 book The Age of Extremes. But he said that Americans should not be so worried about inflation, and that a bit of concern is healthy for their families.

“While policymakers argue about how to defend the growth of the economy, I have a different set of concerns,” Dalio writes. “My concerns are: at what point will businesses slow down their hiring and investment and slow the economy, which is what I believe ultimately caused the 2008 crash? And what is the moral aspect of this phenomenon?”

“In the 1980s, the workers saw inflation as their primary concern,” Dalio explains. “To compensate for stagnating wages, employers offered higher salaries, bought up products with capital, or offered benefits to attract workers. This created a virtuous cycle, with employees feeling richer because of rising wages and employers feeling generous, because of rising profits. As inflation rose, so did employee wages and benefits; this in turn spurred further salary increases. And so on, until the 1929 crash, and everything changed.”

Dalio said that in the US today, wages are staying flat or falling in many industries. Jobs that have gone away, such as manufacturing and coal, have not replaced them. The situation could change, Dalio said, if factories become less labor intensive, or if manufacturing workers are shifted overseas, but right now, employees are unlikely to see big raises.

Dalio pointed to a study by Merrill Lynch that found that employers reacted favorably to inflation, and that they expect it to increase over the coming year. “Not all Americans are worse off. The substantial and important gains that many workers have seen in their paychecks over the past few years are the result of the Labor Department’s hidden process of adjusting for inflation. Because wages do not rise in real terms when you can buy more with each dollar you have, if you worry about inflation, you don’t have to worry about staying ahead, because the wage increase from $25,000 to $26,000 would take real pay below inflation.”

Inflation, Dalio said, can increase the “near-zero labor cost, which has helped workers succeed.” In response, Dalio encourages Americans to put “investments in yourself” and to “get wise about the choices you make.”

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